Harpeth Trace Services Association

Legal Opinion of HTSA Board Authority

Jan 28, 2006

M E M O R A N D U M
TO: Board of Directors
Harpeth Trace Services Association
FROM: John M. Baird
RE: Harpeth Trace, Davidson County, Tennessee
DATE: August 1, 2005

This memo will address the legal existence of Harpeth Trace Services Association, its duties and authority with respect to various phases of the entire Harpeth Trace development in Davidson County, Tennessee, and its interplay with other companies or entities involving that development. This memo is based upon a thorough review of the multi tab binder entitled ?“Harpeth Trace Recorded Title Documents?” assembled by William L. Harbison on or about March 25, 1988 (the ?“Binder?”), copies of recorded plats which were listed in the index to the Binder, but not included therein, and very brief legal research. According to the local office of Lawyers Title Insurance Corporation, no restrictions, master deeds, declarations, or other documents of this sort pertaining to the
Harpeth Trace development have been recorded since March, 1988.

Harpeth Trace Services Association exists ("HTSA"). It has fairly typical powers and authority granted under its charter and Tennessee corporate law. The specific powers that it may actually use with respect to various phases of the Harpeth Trace development are determined by real estate laws principles, i.e., the declarations and restrictions, master deeds, etc., that pertain to the several phases of the development control what HTSA can do, or must do, within those phases.

HTSA has overall responsibility for maintenance of the bridge and entry way, and for most of the road system and utility infrastructure for each phase in the entire development. In this respect, the power and duty of HTSA is narrow and limited. Several other associations have been designated, each to establish rules and regulations for a particular phase, and to manage common areas within that phase, but no other. In one instance it appears that the designated association has never been formed. In at least two phases, HTSA is the second "association," and in those phases, exercises powers granted under the declarations that establish them.

In a couple of phases (e.g., II and III of Harpeth Trace Estates) an architectural control committee was to have been established by the developer of the phase. It isn't clear whether that authority passed to the association for the phase, though a good argument
August 1, 2005 can be made in that regard. My brief research has not turned up a definitive answer. I'll continue to search.

The declarations for each phase may be amended, usually by two thirds of the owners within the phase. The declaration that made HTSA apply to the entire development may also be amended, but a 75% vote is required.

I. The Declaration of Covenants and Restrictions.

On February 22, 1977, a declaration of covenants and restrictions (the ?“Declaration?”) was placed of record in Book 5120, page 208, Register?’s Office for Davidson County,
Tennessee (a copy of this document appears behind tab 19 in the Binder). The
Declaration was made applicable to approximately 107 acres of real property by the declaration of record in Book 5120, page 918, Register?’s Office for Davidson County,
Tennessee (a copy of this declaration appears behind tab 20 in the Binder). According to the introductory paragraphs of the Declaration, the Declaration was intended to establish a means and system for the maintenance and repair of a thirty foot strip of land constituting an access road to the several tracts anticipated to be developed, as well as for a bridge spanning the L&N Railroad Track. The Declaration provides that HTSA would provide these functions, and that, in general, each property owner within the tracts encumbered by the Declaration would be members in HTSA.

The Declaration provides for three classes of members in HTSA, to wit: class A members (owners of property), class B members (occupants, e.g., lessees of property) and class C members (the Developers). Class C membership has expired.

The Declaration provides that HTSA may make and establish reasonable rules and regulations, and charge reasonable fees, for the preservation and maintenance of the roads, ways, and utilities within the development. Fees are to be assigned and collected by way of assessment against the various members.

The Declaration may be amended by the written consent of at least seventy five percent (75%) of the owners within the development.

II. HTSA Charter.

The charter of HTSA appears as an exhibit to the Master Deed, which is under tab 17 of the Binder. Article VI of the Charter sets forth several purposes and powers for the Association, most of which are a good deal broader than specified in the Declaration.
This may seem unusual, but it is not particularly problematic. HTSA is granted broad powers under its Charter, but the Declaration limits the use of those powers with respect to the property encumbered by the Declaration (i.e., what appears to be the entire Harpeth
Trace development).

The Charter provides for three classes of members. This is consistent with the Declaration.

The Charter provides that at all meetings of the members of HTSA, a quorum shall mean one-tenth (1/10) of the members entitled to vote.

Article XI of the Charter provides that the board of directors of the association may
?“?…adopt, amend or repeal the by-laws?…?” of HTSA upon majority vote of the Board. I have not seen the by-laws for HTSA; it is possible they were never prepared.

Article XII of the Charter provides that the Charter may be amended upon two-thirds (2/3) vote of the members.

III. Harpeth Trace Condominiums.

The Master Deed establishing Harpeth Trace Condominiums is of record in Book 5116, page 751, Register?’s Office for Davidson County, Tennessee (a copy of this document appears behind tab 17 of the Binder). This Master Deed is confusing and, in many respects, self contradicting. Nevertheless, it establishes a 7.95 acre tract as a horizontal property regime (i.e., a condominium) under Tennessee law.

Tennessee condominium law requires the formation of some sort of entity to handle the day to day management of affairs of a condominium regime. Typically, this amounts to maintaining common areas (e.g., flower beds, driveways, elevators, stairwells, parking lots, etc.), and levying assessments. The entity which is formed to serve this function does so for a single condominium development.

At first blush, it appears that HTSA was selected to provide this function under the
Master Deed. However, at closer examination, discloses that the functions of HTSA apply generally to the imposition of fees for the maintenance and preservation of the bridge and access road from Highway 100 to the condominium project. ?“Common
Areas?” are designated within the Master Deed, and their administration is to be accomplished in accordance with by-laws of ?“Harpeth Trace Condominiums.?” No other reference is made to an entity named ?“Harpeth Trace Condominiums?” except in the bylaws.

A Tennessee corporation by that name was formed by the filing of a charter on
February 13, 1990. I do not have a copy of this charter.

The attachment of the charter for HTSA and the by-laws for Harpeth Trace Condominiums (two separate entities) creates confusion. Nevertheless, it appears that
HTSA has as its areas of responsibility the bridge and the access road, while Harpeth
Trace Condominiums has duties and the responsibilities with respect to the common areas of those condominiums.

IV. Harpeth Trace Estates.

A declaration of covenants, conditions and restrictions for Harpeth Trace Estates (the
?“CCR?”) was recorded on December 29, 1978, in Book 5380, page 357, Register?’s Office for Davidson County, Tennessee (a copy of the CCR is, initially, listed as being behind tab 24 of the Binder. It was missing; I have obtained a copy). The CCR is applicable to a multi acre tract platted as Phase One, Harpeth Trace Estates. In typical fashion, it sets use restrictions and other operational mechanisms, but authority for enforcing the restrictions and conducting operations is vested in an ?“Association?” known as ?“Harpeth Trace Estates.?” I could find no record of such a company in the online records of the
Tennessee Secretary of State. It may not exist.

The CCR provides that each lot owner within Phase One, Harpeth Trace Estates, is a member of HTSA. The CCR states the purpose of HTSA ?“...is to provide an organization to assume responsibility for the maintenance and certain improvements such as bridges and roads which, of necessity, must be shared by the owners of lots in Harpeth Trace Estates, together with property owners of adjacent tracts.?” (emphasis mine)

Article VI of the CCR provides for the establishment of an architectural review committee by the ?“Developer?” (as defined in the CCR). That article does not contain provision for the turnover or succession of responsibility for the establishment and maintenance of this committee. Logically, the rights of the Developer in this regard should pass to the ?“Association?” (in this case, Harpeth Trace Estates (a nonexistent corporation)), but an argument could be made that the right terminated with the involvement of the ?“Developer.?” Restrictive covenants that condition the right of an owner to make improvements upon the approval of an association of homeowners are generally valid and enforceable, but restrictive covenants are always strictly construed against the party seeking to enforce them; that is to say, the plain language of a restriction is applied and is not expanded by implication. Ambiguities in a restrictive covenant are typically resolved against the restriction, but the ?“intention of the parties?” is always given favor in these situations. Since the declarations for Harpeth Knoll vests architectural control in an association or board, it could easily be decided by a court that the intent of the Developer for this phase was to keep the architectural approval rights for himself, but abandon them once he had ?“sold out.?” Had he intended otherwise, he could have simply said so in the declarations, as occurred for Harpeth Knoll. A contrary intention is expressed by the breadth of activities over which the Developer had control, e.g., ?“reconstruction, remodeling, alteration or addition?”. It might be beneficial to approach the Developer (for this Phase, Stan Chernau, a local lawyer), lead him, if possible, to the position that he intended the authority to pass to the Association, document that intention (perhaps by letter to be kept with the records of the association), and then have the
Association, or its board, set the committee. This would not be foolproof, but it would give the Association a much better arguing position if litigation arose regarding decisions of the architectural control committee. As it now stands, I would not recommend that the board of the Association undertake architectural control functions. Certainly, HTSA does not have these rights and responsibilities with respect to this Phase of Harpeth Trace Estates.

The declarations which are applicable to Harpeth Trace Estates, Phase I, may be amended by two-thirds (2/3) of the owners of building sites within that phase.

V. Additional phases of Harpeth Trace.

The CCR was made applicable to Phases Two and Three of Harpeth Trace Estates by documents which appear behind tabs 26 and 27 of the Binder. These documents incorporate a good bit of the language of the CCR, but demonstrate some slight differences. One material difference, however, is that both these phases select HTSA as their ?“Association.?” Thus, with respect to Phases Two and Three of Harpeth Trace
Estates, HTSA serves both the functions set forth in the Declaration, and the functions set forth in the declarations which operate with respect to those phases.

Phase Two and Phase Three each have an architectural review committee substantially identical to that set forth in the CCR. Again, it is not clear that HTSA has the right to appoint such committee with respect to these phases. (See discussion above in IV.)
The declarations which apply to Phases Two and Three may be amended by action of two-thirds (2/3) of the owners of building sites within the pertinent phase(s).

VI. Harpeth Knoll.

The ?“Harpeth Knoll Subdivision?” was established by declaration recorded in Book 6280, page 478, Register?’s Office for Davidson County, Tennessee (a copy of this declaration appears behind tab 28 of the Binder). The ?“Association?” established by this declaration is ?“Harpeth Knoll Homeowners?’ Association.?” A company by that name is on record with the Tennessee Secretary of State.

The declaration for Harpeth Knoll Subdivision recites that each homeowner within that subdivision is a member of HTSA. HTSA?’s purpose is recited as having to do with maintenance of bridges and roads.

Architectural control within this subdivision (or phase) is vested in the board of directors of Harpeth Knoll Homeowners?’ Association. The declaration which pertains to Harpeth Knoll Subdivision may be amended by written instrument signed by at least seventy five percent (75%) of the building site owners in that phase.

VII. Treetops.

A declaration of covenants, conditions, and restrictions for Treetops at Harpeth Place appears of record in Book 6287, page 417, Register?’s Office for Davidson County,
Tennessee (a copy of this document appears behind tab 29 of the Binder). This declaration establishes ?“Treetops at Harpeth Trace Homeowners?’ Association, Inc.?” as its ?“Association.?” The Tennessee Secretary of State indicates that this corporation is in existence.

According to the declaration for this portion of the development, its association has authority over, among other things, private driveways and other common elements within the development. The plat for this portion of the development indicates that anything on the plat not designated as a building area is a ?“common element.?” This declaration contains reference to HTSA and each owner?’s required membership in that organization.

It appears that there may be some overlap between the assessments for road repair rightly levied by HTSA and the assessments for road repair which may be levied by Treetops at Harpeth Trace Homeowners?’ Association, Inc. My conclusion is that the duties and authority of HTSA in this area is paramount.

There is no provision for an architectural control committee in the declaration for Treetops.

The declaration that applies to Treetops may be amended by an instrument executed by both (i) at least seventy-five percent (75%) of the ?“total voting power of the Association?” and (ii) holders of deeds of trust (mortgages) who have given a required notice to the board of the Association.

VIII. Conclusion.

In sum, HTSA has general responsibility and authority within the entire Harpeth Trace development with respect to the maintenance and repair of the bridge and access road
from Highway 100, primary roads and ways within the development, and utility lines or services that serve the development as a whole (or, perhaps, a particular phase of the development) but which are not maintained by the utility provider. HTSA has both the authority and the duty to levy assessments for the sums needed to accomplish the maintenance of these items.

Each separate phase, subdivision or neighborhood within the Harpeth Trace Development has its own set of governing declarations and, with the exception of Phases Two and
Three of Harpeth Trace Estates, each has its own ?“Association?” which is to provide governance of these matters. The powers and duties of these associations do not usurp,
or take precedence over, the duties of HTSA with respect to the bridge, roads, and utilities. There appears to be an overlap of duties and authority in Treetops with respect to roads.

Architectural control may be exercised by the board of the Harpeth Knoll Homeowners?’ Association with respect to the lots within that portion of the development. The governing association for the other single family phases may or may not have this type of authority, but exercise of this authority without additional action would be unwise. The rule making authority of each association would not be broad enough to create this type of right for the pertinent association.